EQUITY, EQUALITY AND WELFARE

This paper argues that horizontal equity (HE) and vertical equity (VE) are two of the basic commands of social justice, and can be seen as hierarchical: the information content of the VE command is sufficient also to implement HE. A general, vector specification of inequity is proposed for a tariff (treatment system) which does not satisfy HE and VE. In the case of the income tax, the distinction between the HE and VE commands, and the NR (no reranking) criterion which has coexisted in the income tax literature with these for the last 15 years, is drawn. A complication not recognised by HE and VE is the effect of pursuing the common interest (efficiency) goal of the tariff. The paper concludes with a call for further work on the meaning and implementation of concepts of justice in direct taxation, and on the common interest dimension.